Oil companies gain on gas pricing reform hopes

Engineers of Oil and Natural Gas Corp (ONGC) work inside the Kalol oil field in Gujarat September 12, 2009.

Reuters/Amit Dave/Files

Reuters Market Eye - Shares in upstream oil and gas companies rally on hopes that a pricing formula, recommended by a government-appointed panel to look into oil and gas exploration contracts, will help sharply raise the prices of domestic natural gas.

The pricing formula, if approved by the government, could raise gas prices to around $8 per mmbtu (million metric British thermal units) by 2014/15 , brokerage Motilal Oswal estimated in a note dated on Thursday.

Motilal Oswal said Oil India Ltd, Oil and Natural Gas Corp Ltd, and Reliance Industries (RELI.NS) would be the biggest beneficiaries of the proposed formula, which involves volume-weighted international prices for gas producers.

While the government would take a final decision on the recommendations, our analysis indicates that domestic producers shall benefit from the proposed gas price formula, analysts at Motilal Oswal said.

ONGC shares are up 2.4 percent, while Oil India gains 3.1 percent. Reliance Industries is flat for the day.

(Reporting by Manoj Dharra)

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